Can Wix.com Win the Restaurant Market?

As restaurants were forced to enhance their digital presence due to COVID-19, popular drag-and-drop website builder Wix.com (WIX -0.88%) saw increased adoption of its full-service restaurant solution, Wix Restaurants. To bolster its offering, Wix recently introduced a point-of-sale (POS) system and acquired a digital ordering business.

Here's why Wix is betting big on restaurants. 

Restaurants need a digital presence

Wix Restaurants was initially introduced in 2016 to help customers easily build a website and it has expanded since. With Wix, businesses can design menus, take orders free of commissions, and let customers book tables all from one place. And since in-person dining was halted by the pandemic, many restaurant operators had to reevaluate their online customer interface.

Image source: Getty Images.

This has shifted most restaurants' focus to a digital-first approach, rapidly accelerating the adoption of Wix Restaurants. According to Wix itself, monthly new signups have grown from hundreds to tens of thousands. Since the start of 2019, Wix Restaurants has seen a 143% increase in new customers, with online orders growing by 378%. It's clear that a strong internet presence is no longer just nice to have but necessary for a restaurant's survival. 

Betting big on restaurants

Without disclosing the purchase price, on March 2 Wix agreed to acquire digital-ordering specialist SpeedETab. Among other things, SpeedETab is well-known for helping merchants easily integrate mobile orders into their existing website or system, while also funneling orders into one spot to make life easier for the restaurant operators. Without knowing the ins and outs of the deal, this should clearly add value to Wix Restaurant users as it grants their customers easier access to the restaurant's menu while removing friction on the operator's side.

This acquisition follows Wix's recent introduction of its own POS system. Currently, the Wix POS system seems to be exclusively for brick-and-mortar retail. However, management did mention that it intends to spend part of its expected 2021 capital expenditures building out its POS solution and scaling it globally. Whether customers are placing their orders via phone, desktop, mobile, or even in person, the future of dining appears to be omnichannel, and this move would help Wix adapt to that. 

However, despite an independent POS system seeming like a logical next step for Wix, this endeavor should carry some risks. Since 2017, Square (SQ 0.51%) and Wix have had a symbiotic relationship helping power small businesses. Introducing its own POS system means Wix is stepping on the toes of its partner and could face some pushback from the $100 billion payments giant. 

What does this mean for Wix?

Since its inception, Wix has been driven primarily by simple subscription revenue. Users build websites tailored to their specific needs, then pay Wix a monthly fee for hosting the website. These contracts range anywhere from one year to three years and revenue is recognized gradually over the life of each contract. 

But lately, Wix has been diverging from purely subscription revenue. As customers have begun to lean on Wix as their digital partner, it has built out additional functionality to help better serve them, which is reflected in its revenue mix. 

Source: Wix.com financial reports.

While business solution revenue has a lower gross margin than subscription revenue, the additional functionality that it provides customers -- restaurants, in particular -- makes the value proposition for using Wix much more compelling. Over time, this should convert to increased market share in the restaurant space and ultimately greater pricing power on the subscription side.

As a Wix shareholder, I think this big bet on the restaurant market seems sensible and it should pay off in the long run.